RPSM10105190 - Technical Pages: Death benefits: Lump sums pre 6 April 2011: Member dies aged under 75: Taxation of a pension/annuity protection lump sum death benefit

This guidance only covers the position where the member died before 6 April 2011. If the member died on or after 6 April 2011 see RPSM10106000.

Taxation of a pension protection lump sum death benefit or annuity protection lump sum death benefit

[Para 11, Sch 31][s636A(4)(a) and (b), Chapter 15A ITEPA03] [s206][s273A][Para 49, Sch 10, FA 2005][The Pension Benefits (Insurance Company Liable as Scheme Administrator) Regulations 2006 - SI 2006/136] 

Where a pension protection lump sum death benefit or annuity protection lump sum death benefit is paid the scheme administrator becomes liable to a charge to income tax at the rate of 35% on the level of payment made. This is referred to in the legislation as a special lump sum death benefits charge.

The special lump sum death benefits charge will not apply to any part of the lump sum that arises from the payment of a pension guarantee in existence on 5 April 2006 - see RPSM10105530.

Where the lump sum death benefit is paid by an insurance company they become liable for the charge due.

The scheme administrator, or insurance company, may deduct the charge due before making the payment. RPSM04101110 explains how the scheme administrator, or insurance company, accounts for the charge due.